Finch Raises $1.8M to Bring Investment Returns to Checking Accounts

Approximately 60% of millennials do not invest at all and leave their money sitting in checking accounts, earning no return. Finch is the all-in-one integrated checking and investment account that invests checking balances into personalized portfolios that match an individual’s risk tolerance and investment goals. Armed with a debit card, the account holder can withdraw his/her funds at any time including the invested portion. The company earns a small percentage of each debit card transaction and also charges a nominal monthly subscription fee based on the level of service the user selects.

Boston TechWatch caught up with Founder Neel Ganu to learn more about the genesis of the company’s future plans, imminent launch in the App Store, and recent round of funding.

Who were your investors and how much did you raise?

Our seed round was led by Boston-based Mendoza Ventures with participation from Barclays, Techstars Investors, and Draper Frontier. We raised $1.8M.

It’s great to be partnering with leaders in fintech and global banking as we bring our platform to market

Tell us about the product or service that Finch offers.

Finch is a productive everyday account that integrates the benefits of investing and the flexibility of checking into a seamless all-in-one account.

Finch lets customers earn investment returns by automatically investing their checking balance into a portfolio designed to match their unique risk profile.

This means your entire balance is always working for you, from day one, no matter what your balance is. Finch further pushes the envelope by enabling customers instant access to their money when they need it – even the invested part!

What inspired the start of Finch?

I was always perplexed by why investing was so hard.

Despite spending the majority of my career leading financial institutions through their investment decisions, when it came to managing my own money, I always felt I could do better – but I didn’t, and ended up holding my balance in cash.

Having discovered that in the US, a staggering three in five Millennials do not invest at all, I realized I was not alone in my inertia. Compounding this with the growing financial debt among Millennials, with 62% living paycheck-to-paycheck, opened my eyes to how significant this issue is.

At traditional banks and financial institutions, checking and investing accounts are separate. In order to put their money to work, customers are required to manage the flow of money between these accounts, through an ongoing manual process. This friction helps to explain why 86% of Americans do not invest outside of their retirement accounts.

In addition, Americans pay an average of $329 per year in bank fees, but they receive very little back in terms of interest. Despite this, an overwhelming number of people continue to leave their balance sitting idle in a traditional checking account – when it could be working for them.

Many people express that investing is too complex, while others feel they have very little financial flexibility to think about investing and other financial opportunities. But by keeping their money idle in a traditional checking account, they could be missing out on up to 50% of their wealth every ten years, further exacerbating the wealth gap.

Determined to financially empower younger generations and help close the wealth gap, I set out to find a simpler and more impactful way to support financial growth.

How is Finch different?

Finch is different as we create a completely new product category.

When it comes to banking and investing, recent innovations have centered around making ‘traditional’ products simpler – improving the user experience (e.g. don’t have to wait in line at a branch anymore, no account minimums) and eliminating fees (e.g commission-free trading). New entrants in these industries have kept traditional business models but made them simpler for customers.

Finch creates a new product category, as not only does it make the process simple, but it also sits at the intersection of both banking and investing. As a result, it creates a new seamless account that gives you the returns of investing and the flexibility of checking.

What market does Finch target and how big is it?

Our first customer segment is Millennials (25-35) that know they should be doing more with their money.  But for a variety of reasons leave more money sitting idle in cash than they should.

Finch democratizes investment access and empowers Millennials to make their money work for them.

Millennials have been frequently overlooked when it comes to managing their money, and stand to benefit from Finch:

  • They have less flexibility to save compared to other generations – 62% of Millennials live paycheck to paycheck (vs. 60% Gen-X, 55% Gen-Z, and 53% Baby Boomers)
  • Millennials are investing less than before – On average [2018-2019], only 49% of Millennials had some exposure to the stock market (directly or via retirement plans), which was down sharply from 61% of Millennials investing between 2001-2008
  • Millennials hold far less wealth today that comparative age groups in the past

In 1989, the median household of age 65-75 held 8.0x times more wealth than that of the median household of age 25-25

In 2016, the median household of age 65-75 held 13.0x times more wealth than that of the median household of age 25-25

  • Millennials are reaching an age where their earning potential peaks and they need to start investing today to ensure their financial freedom. The knowledge gap around personal finance needs to be addressed as well. Far too many people believe they need to wait to have more money to be able to invest, where the true value comes from investing consistently from an earlier age.

There are approximately 70M Millennials in the US. 3 out of 5 millennials are not investing at all.

What’s your business model?

Finch’s business model has two main pillars:

Firstly, similar to all Visa and MasterCard issuers, we earn a small percentage of each debit transaction which is paid by the merchant (all banks do this today).

Secondly, based on the package you select, we will have a low monthly subscription fee.

How has COVID-19 impacted the business?

The broad sweeping effects of COVID have had devastating impacts on families, businesses and our empathy goes out to all those impacted.  From a business standpoint, COVID meant that we re-focused our budget to extend our runway, re-strategize our launch plans and our supporting initiatives, and slowed our hiring velocity.

The most important impact of all has been our team switching to remote working and working across multiple time zones on complex topics while also building relationships and our culture.

I’m proud of the way that my team has been agile and adapted to the new circumstances.

What was the funding process like?

One year ago, at a Lobster bake event hosted by First Republic Bank, I was lucky enough to meet Pong Choa from Mendoza Ventures.

Finch was lucky to have found a partner in Pong that day who embraced our vision. Mendoza Ventures has gone above and beyond what I typically would have expected from an investor. In addition to understanding what we’re building and our purpose to empower people, they acutely appreciate the complexity of launching a new consumer financial services product.By providing the capital to launch, hands-on assistance from the partner team, and access to their network of industry experts, Mendoza Ventures has helped us make great progress and much faster.

Fundraising is never an easy process, however, this helped us refine our purpose, strategy, and acquisition approach based on the feedback of investors who had a depth of experience in the space.

We were lucky enough to partner with leading investors such as Barclays, Techstars, and Draper Frontier who believed and shared in our vision.

We are thankful for our seed investors and incredibly grateful to have them as business partners along with us for this journey.

What are the biggest challenges that you faced while raising capital?

There were two primary challenges we faced when raising capital:

  • Raising a seed round as a pre-launch company
    Raising a seed round is not an easy task, however, it becomes more difficult if you are trying to raise funds without having launched a product in the market. Not only does this mean you are likely speaking to a different target investor set, but it also means you need to focus more on your vision and demonstrate that you have the right team to execute on that vision.
  • Competitive concerns in the industry

The second challenge was of our market having multiple well-funded competitors who had started carving out their own unique customer segments within the space. As fintech investment in challenger banking has increased, so have the barriers to funding. Our method of overcoming this challenge was demonstrating our true differentiation, a new approach, and how we carve out a unique product category in the market.

The second challenge was of our market having multiple well-funded competitors who had started carving out their own unique customer segments within the space. Our method of overcoming this challenge was demonstrating our true differentiation, a new approach, and how we carve out a unique product category in the market.

What factors about your business led your investors to write the check?

Three factors supported our fundraise:

  • Team – Our team brings together the right variety of experience with a background in marketing, operations, and technology, with experience from companies such as N26, Epsilon, State Street, and Monzo.
  • Progress to date and a path to launch – The progress we were able to make from a regulatory, engineering and operational perspective demonstrated that we were on a launch trajectory to create a new product category
  • Purpose – Finally, our product, team, and everything we do is built around our core purpose – to empower people to make their money work for them and take steps towards reaching financial freedom

What are the milestones you plan to achieve in the next six months?

The biggest milestones over the next six months are:

  • Officially launching our platform on the Apple App Store in October 2020
  • Demonstration of product engagement and market fit
  • Building an engaged online community

What advice can you offer companies in Boston that do not have a fresh injection of capital in the bank?

For those in need of capital, work to better understand what investors are looking for when it comes to your industry. Finding the right investor is about a partnership with someone who uniquely understands your business and the potential of your larger vision. Be smart, be scrappy, be resourceful. Also only hire and partner with great people early on. Those who not only bring great talent – but are also passionate about your vision and align well to support the team.

Where do you see the company going now over the near term?

We are building Finch to empower people to make their money work for them and take steps to reach financial freedom.

To do so, first, we’re starting by innovating the every-day portion of people’s financial lives and helping them gain the benefits of investing with the flexibility of checking.

In the medium and long term, we want to grow with our customer base. This is twofold, from an education perspective and product perspective.

From an education perspective, we want to help improve the level of financial awareness and literacy among our community. This includes creating content to assist people with their holistic financial needs, so they have the information required to make the best financial decisions for their unique situations.

From a product perspective, we want to expand to a wider set of investment products that assist you with your medium-term and retirement goals. By bringing the same spirit of innovation to products that haven’t changed for 30 years or more, we can empower people to make their money work for them.

What is your favorite restaurant in Boston?

Tiger Mama – Go try the Cha Ca La Vong!

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